ERISA – Labor & Employment Bloghttps://www.steptoelaboremploymentblog.com
Tue, 05 Mar 2019 21:35:21 +0000en-UShourly1https://wordpress.org/?v=4.9.10https://www.steptoelaboremploymentblog.com/files/2018/08/cropped-favicon-2-32x32.pngERISA – Labor & Employment Bloghttps://www.steptoelaboremploymentblog.com
3232Alert: SEC Proposes Best Interest Standard for Retail Accounts and Related Disclosure Requirementshttps://www.steptoelaboremploymentblog.com/2018/04/alert-sec-proposes-best-interest-standard-retail-accounts-related-disclosure-requirements/
Thu, 26 Apr 2018 23:56:02 +0000https://www.steptoelaboremploymentblog.com/?p=2160Continue Reading]]>On April 18, the Securities and Exchange Commission voted 4-to-1 to propose a set of new rules that would affect broker-dealers’ and advisers’ relationships with retail investor customers, including retirement investors. We have just published an alert discussing the Commission’s proposals, available here.
]]>Ninth Circuit Set to Weigh in on Whether Defendants May Compel Arbitration of ERISA Claimshttps://www.steptoelaboremploymentblog.com/2018/03/ninth-circuit-set-weigh-whether-defendants-may-compel-arbitration-erisa-claims/
Fri, 09 Mar 2018 23:18:45 +0000https://www.steptoelaboremploymentblog.com/?p=2144Continue Reading]]>Two California district court decisions, the most recent issued in January, have set the stage for the Ninth Circuit to rule on when courts may require plaintiffs to arbitrate ERISA fiduciary breach claims. In March 2017, the Central District of California held in Munro v. University of Southern Californiathat plaintiffs who had signed employment agreements requiring arbitration could nevertheless pursue their claims in court. The court reasoned that the plaintiffs, all ERISA plan participants, brought the claims on behalf of plans, which had not consented to arbitration. Weeks ago, in Dorman v. Charles Schwab & Co., Inc., the Northern District of California concluded that it would not compel arbitration even where an arbitration provision was written into the plan itself.

Munro and Dorman both involved claims challenging plans’ investment offerings and fees under ERISA Section 502(a)(2). That provision states that “a civil action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief” under Section 409, which in turn provides that a fiduciary who breaches his or her duties is liable to the plan. See generally LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 261 (2008) (“The plain text of § 409(a) . . . leaves no doubt that § 502(a)(2) authorizes recovery only for the plan.”). While the Ninth Circuit and other circuits have uniformly held that ERISA claims generally are arbitrable, the Munro plaintiffs argued that Section 502(a)(2) claims are an exception. The court, noting that there was no Ninth Circuit authority on point, relied on cases holding that an individual plaintiff’s execution of a release does not prevent him or her from suing on a plan’s behalf. See Bowles v. Reade, 198 F.3d 752, 760 (9th Cir. 1999).

The Dorman court carried Munro’s reasoning a step further. The court found inapplicable several arbitration clauses—two in documents that the named plaintiff had executed did not cover the dispute; one in the plan document itself was executed after Plaintiff’s termination. The court went on to say that even if the plan document were binding, it would not compel arbitration of Plaintiff’s Section 502(a)(2) claim because the plan document was executed “unilaterally” by the plan sponsor. The court concluded: “A plan document drafted by fiduciaries—the very people whose actions have been called into question by the lawsuit—should not prevent plan participants and beneficiaries from vindicating their rights in court.”

Both cases point to interesting issues related to Section 502(a)(2) and the interplay between ERISA and the Federal Arbitration Act. The Munro appeal has attracted amicus attention from the AARP and the AARP Foundation (supporting the plaintiffs) and the U.S. Chamber of Commerce (weighing in for defendants), whose briefs take opposing views on whether the FAA requires courts to compel arbitration for any ERISA claims. Moreover, the opinions highlight the distinct nature of claims under Section 502(a)(2), which courts have generally not read to impose requirements such as demand obligations typical for derivative cases or certification standards applied in class actions. See, e.g., Perez v. Bruister, 823 F. 3d 250, 258 (5th Cir. 2016) (declining to address “theoretically difficult question” of whether plaintiff “was required to sue as a class representative, or the court was required to impose safeguards to ensure that all class members are notified, fairly treated, and not disadvantaged” because the fact that Secretary brought parallel case obviated concerns). This leads to some tension with the courts’ reasoning that a plan must consent to arbitration, since it is arguable that a plan or its participants has not “consented” to federal court litigation either. Courts have also differed with Bowles, reasoning that even if a single participant cannot release a plan’s claims, a participant’s execution of a release can preclude that participant from bringing such claims. Wagner v. Stiefel Labs., Inc., No. 1:12-CV-3234-MHC, 2015 WL 4557686, at *11–12 (N.D. Ga. June 18, 2015); cf. Howell v. Motorola, Inc., 633 F.3d 552, 561 (7th Cir. 2011) (reading ERISA Section 410 broadly “would make it impossible, as a practical matter, to settle any ERISA case”). The ultimate decision in Munro may address some or none of these issues.

The Ninth Circuit is unlikely to decide Munro for several months (recent docket entries point to oral argument in May or later), but a wildcard may come in the next few weeks from the Supreme Court. The Court appears likely to issue an opinion soon in Epic Systems Corp. v. Lewis, a case argued on the first day of the October Term. Epic Systems, which was consolidated with two other cases including one from the Ninth Circuit, addresses whether the National Labor Relations Act prohibits enforcement of an agreement requiring an employee to arbitrate claims against an employer on an individual basis, waiving class and collective actions. Dorman declined to stay proceedings pending a decision in Epic Systems, but depending on how the Court decides the case, it may influence how broadly courts apply the FAA and how they construe its interaction with federal laws like ERISA. In any case, plans and practitioners may receive greater clarity soon on which ERISA claims are arbitrable.

]]>Courts Weigh in on Challenges to University Retirement Planshttps://www.steptoelaboremploymentblog.com/2017/12/courts-weigh-challenges-university-retirement-plans/
Thu, 07 Dec 2017 19:22:58 +0000https://www.steptoelaboremploymentblog.com/?p=2084Continue Reading]]>In a series of recent decisions, courts have weighed in on a spate of ERISA lawsuits challenging retirement plans private universities offer to their employees. These rulings, most of which allowed claims to proceed past the motion to dismiss stage, highlight the variation in standards courts apply when weighing ERISA fiduciary suits. Moreover, they underline the need for plan fiduciaries to review the performance and fees of their plans’ service and investment providers on a regular basis to determine whether the providers’ fees are reasonable and their continued retention is appropriate.

In summer 2016, participants in retirement plans sponsored by prominent universities filed putative class actions challenging several aspects of these plans. Targeted schools include Columbia, Duke, Johns Hopkins, Princeton, the University of Pennsylvania, and Yale. Courts have only recently begun issuing opinions on motions to dismiss in these cases. Only one court—in the University of Pennsylvania case—dismissed the complaint in full, with other courts varying in the claims they allowed to proceed.

Courts handed down the bulk of their opinions in August and September. The Southern District of New York granted in part and denied in part motions to dismiss in suits challenging decisions by fiduciaries of New York University’s and Columbia’s retirement plans in August, followed closely by a District of Massachusetts Magistrate Judge’s Report & Recommendation concluding that a similar case involving MIT’s plan should proceed. In September, the District of Maryland, the District of New Jersey, the Northern District of Illinois, and a different judge on the SDNY issued similar decisions in the Johns Hopkins, Princeton, University of Chicago, and Cornell cases. These courts joined the Northern District of Georgia and the Middle District of North Carolina, which earlier issued similar rulings involving Emory and Duke. All involved participant-directed, defined contribution plans, in which plan fiduciaries select a menu of investment options into which participants can direct their retirement funds.

The claims in these cases also involved similar allegations—which is unsurprising, since the suits were filed by the same counsel, as the court in the Columbia case noted—with plaintiffs alleging that the plans at issue failed to use their bargaining power to reduce costs to participants, among other claims. The plans differ somewhat in their size and their investment offerings. For example, the MIT plan at one point allowed participants to choose from among 340 investment options, while the Emory and Columbia plans offered 111 and 116 options respectively. However, the plans shared several essential features—their contracts for recordkeeping and administrative services required the plans to offer several investment options in which participants can invest, and the plans offered many of the same types of options. Indeed, the SDNY noted in ruling on the Columbia case that while the two Columbia plans and those involved in the NYU case “vary at the margins . . . no difference is material to the claims at hand.”

Despite these similarities, the courts reached divergent outcomes on several issues. The SDNY rejected claims that defendants in the NYU case breached their fiduciary duties by agreeing to a contract that required the inclusion of several investment options, holding that “while plaintiffs allege that NYU was contractually required by the service providers to include certain investment Options, there is no allegation that plaintiffs were required to invest in any particular investment Option.” (Emphasis added.) The Northern District of Georgia, by contrast, allowed such a claim to proceed in the Emory case. That court also rejected defendants’ argument that this claim was time-barred, reasoning that the defendants had a continuing duty to monitor whether the arrangement remained appropriate. The Middle District of North Carolina, however, dismissed as time-barred a similar claim in the Duke case, reasoning that the complaint’s allegations were tied to defendants’ initial entry into the arrangement. Significantly, however, these courts were in accord in rejecting claims that defendants breached their fiduciary duties by offering participants too many investment options (this coming after myriad complaints by plaintiffs alleging that plans have offered too few options), with the courts in the Johns Hopkins, Cornell, NYU, Columbia, and MIT cases all rejecting such claims.

The only court that has dismissed a complaint in its entirety—so far—is the Eastern District of Pennsylvania. As did the court in the NYU case, the Penn court rejected arguments that defendants offered too many options and that they improperly agreed to a contract requiring the inclusion of certain investment options. It went further, however, rejecting claims that certain investments were imprudent or that defendants caused the plan to pay excessive administrative fees. The courts in the NYU and Columbia cases refused to dismiss such claims, and courts addressing many of the other cases allowed an even broader range of claims to proceed to discovery. That these courts reached such differing outcomes in addressing similar claims against similar plans shows the variation that continues in courts’ approach to ERISA fiduciary claims.

Despite the variations in the opinions, the fact that most of the courts have allowed at least some claims to proceed should be significant to plan fiduciaries. Courts have varied in their reasoning and results, but the outcomes obscure some important lessons from the opinions. The report and recommendation in the MIT case, for example, highlighted changes made to the plan’s investment lineup in dismissing plaintiffs’ duty of loyalty claims, while the NYU opinion pointed to fiduciaries’ failure to take any steps over the years to reduce administrative fees. Taken together, these opinions highlight the need for plan fiduciaries to review the performance and fees of their plans’ service and investment providers on a regular basis and make changes where appropriate.